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Case Study Summary

Canon, Inc. Success That Is Hard


To Copy
Canon, Inc. has remained one of those stellar performers that not only
survived in the recession period that took place in Japan but also it grew and
prospered in spite of difficult domestic market environment. The company earned
about $1.4 billion on consolidated net sales of approximately $25 billion in 2002,
which gave it a third straight year of record profits and a nearly 12 per cent return
on equity.
This came forth by dint of the successful policy of the CEO, Fujio Mitarai. He
adopted some western cost cutting practices he learned during the 23 years he
worked for Canon in America. First, he narrowed the companys strategic scope by
concentrating on a few product-markets (tradeoff) where the firm had an
established market presence and superior technological capabilities, while
abandoning other businesses where it had a weaker competitive position, such as
personal computers and liquid-crystal displays. Mr. Mitarai also scrapped the
assembly lines in all 29 of Canons japanese plants, replacing them with small work
teams or cells of about six employees who do the work of about 30 workers
under the old system. These self-managed cells have not only reduced Canons
labor costs, but have enabled the firm to cut its inventory of component parts by 30
per cent and to close 20 of its 34 warehouses. In addition, Mr. Mitarai gradually
moved a larger portion of Canons manufacturing outside of Japan to lower-wage
countries like Vietnam and China.
A second important strategic thrust underlying Canons success is a heavy
emphasis on developing and marketing a stream of new products, product
improvements, and line extensions in order to sustain a leading share position in its
core businesses.
As a first step toward implementing this product development strategy the
company plows nearly eight per cent of its total revenues back into product R&D.
Some of that investment is targeted at continued improvement of Canons offerings
in businesses where it already holds a dominant market share. In other cases,
Canons development efforts focus on innovative new-to-the-world products like
the development of a digital radiography system or product modifications aimed
at new applications segments, such as a wide-format bubble jet printer for the
commercial printing industry.
Of course, it is one thing to develop a bunch of new products on the cuttingedge of technology, but making potential customers aware of those new products
and their benefits and actually generating sales revenues requires effective and
well-funded marketing and sales efforts as well. Consequently, Canon has

restructured its global sales and marketing organization in recent years to


decentralize decision making and make its marketing plans better adapted to local
market conditions. This is particularly critical because the firm earns more than 70
per cent of its sales revenues in markets outside of Japan.

Analysis
Cost leadership is a different concept than Cost Cutting
It is learnt from the case study that cost cutting is a totally different concept
as compared to cost leadership, although, both are demonstrating the lower
cost focus. Cost leadership is a marketing strategy that aims to provide the
same quality of product prevailing in the market at lower cost.
On the other hand, cost cutting is related to operational effectiveness. It is
possible that a company that has undergone product differentiation strategy
in the market may also undergo cost cutting strategy though operational
effectiveness. This may include:
i.
ii.
iii.
iv.
v.

Business process re-engineering


Right Sizing
Austerity measures for top executives
Total quality management
Synergy

For Example: Apple is a differentiated brand in market in Laptops and


Smartphones that is owned by Apple incorporation based in California. But,
its manufacturing facility is located in china where cheaper raw material and
labor cost gives it an edge over the profits.

New product development should account for the perceived customer


differentiation of the new product
The new product developed and marketed should have the features that are
clearly differentiated from the prevailing products in the market. If this does
not happen, the customer will not value the product.

In order to sustain differentiation, R & D must be done off and on


If a firm wants to undertake the product differentiation strategy, it must have
to undertake R&D so that new features may be incorporated in the product to
sustain a differentiation.

Only R&D is not sufficient, adequately marketing the differentiated


feature incorporated in the product is equally necessary
If a firm puts heavy emphasis on the R&D but does not focus on the
marketing, it is actually bringing dissonance in the customers that perceive
the change in product specifications as a mere re-designing.

Introduction of successful new products in the market actually


diversifies the portfolio of the company for customer value and in
return assures higher returns.
New product development actually opens new horizons for the organization in
order to achieve higher returns in the existing market.

Being the pioneer gains a firma number of potential competitive


advantages, but it also involves some major risks.
If the product becomes successful the pioneer may capitalize on their early
advantage and maintain a leading market share of the product category,
earning substantial revenues and profits, well into the later stages of the
products life cycle.
If the product fails, the followers overtake the pioneer by offering better
products, superior customer service, or lower prices.

Devising a strategy requires to make tradeoffs in competing- to choose


what not to do.
This is clearly depicted in the strategy of Canon when it put off its stake in
some of the products where it had weak competitive position while concentrating on
the products where it had strong competitive position.

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